The Biggest Engine of Economic Growth? 8 Ways Taxpayers and the Government Are Necessary to Capitalism
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Dating back to Ronald Reagan, and even before, conservatives have constantly attacked government. The drumbeat repeats the notion that the private sector can do everything better. “Privatize everything" is the mantra. It’s hard to imagine anything more destructive to our economy.
This presidential season, GOP candidates have revved up the maligning of government, and even liberals and Democrats join in the chorus, spreading the big lie that government is too big, corrupt and wasteful without understanding just what government provides the economy and society.
A big part of the message is that the private sector is responsible for the progress and innovation that drive economic growth. Conservatives crow that private venture capital is what makes America great. Mega-millionaire Mitt Romney is the loudest on this point -- a man who made his money at Bain Capital, a venture operation known for buying companies, laying off workers and selling them off for big profits.
Yet the persistent view that the private sector is chiefly responsible for economic growth is false. Those who claim the superiority of private capital and insist that government is not effective as an inventor or venture capitalist should consider the history of the jet engine and the computer, to name just two inventions have been essential to progress and technology growth. They were both developed with public money. The Internet, too, was invented in a government laboratory in the late '60s , and its early applications were heavily underwritten by the federal government.
Private Sector Corruption
We’ve all had our frustrating experiences with the government, from the local DMV to the IRS. But what about the aggravation and heartaches caused by many private sector operations? Are you really satisfied with cable TV, telephone companies, banks and the credit card industry? In their zeal to squeeze every cent from their customers, they seem to want to drive us insane. Where the private sector meets bureaucracy, there is waste and tons of corruption.
For example, recently JPMorgan Chase, whose CEO Jamie Dimon is both a media darling and for a while President Obama's favorite banker, agreed to pay $110 million to settle a class-action suit for gouging its customers on overdraft transactions. JPMorgan Chase, like many banks, artificially re-ordered transactions to clear from highest to lowest in order to trigger many more overdrafts payments, basically cheating customers. To the public (those who heard about the settlement), $110 million seems like a lot of money. But it is only a lot if it cut greatly into the profits that were made with the overdraft bonanza.
Fortunately, journalist Jeff Horwitz of American Banker discovered that the bank generated $500 million a year in post-tax income from high-to-low re-sequencing, according to Chase’s own analysis. Thus, Chase’s settlement is very favorable to the bank, given that the $110 million offered is just 22 percent of its alleged earnings from wrongful overdraft fees. As the Huffington Post adds: “When compared with the billions of dollars big banks have rung up in overdraft fees over the last decade, recent settlements with customers over unfair overdraft charges have amounted to little more than a slap on the wrist."
Now imagine the uproar from conservatives if the government had perpetrated this kind of fraud on U.S citizens. But do we hear calls for the end of private enterprise because of corruption and waste? Hardly.
Though we pay obeisance to the late Steve Jobs for the iPhone, researchers Michael Shellenberger and Ted Nordhaus have noted that all of its core technologies, from the microchips to GPS to the voice-control application, Siri, depended on years of Department of Defense funding. In fact, the U.S. government has been the key engine of economic growth since the earliest days of the Republic— and it is now, but very few people realize that. Why? Because we don't explain how government spending is woven into much of corporate success. We don’t counter that the government is constantly in an active, co-venture model with the for-profit sector in providing vast elements of infrastructure and directly creating technologies that the economy is dependent on, and corporations profit from.